EDITORIAL: Setting priorities is critical for governments around the world operating within financial constraints. Successive governments in Pakistan have, however, typically set development priorities based on their political pledges reflective of their economic ideologies though unfortunately delaying/abandoning development projects to contain an unsustainable budget deficit, especially when the country is on a rigid International Monetary Fund (IMF) programme, has been the norm.
The Pakistan Muslim League-Nawaz (PML-N) politically pledged mega-physical infrastructure projects particularly roads and power as a means to jump-start the economy, both in the private and public sectors, thereby creating employment opportunities and reducing poverty levels. The Pakistan Tehrik-i-Insaaf (PTI) while in opposition denigrated this focus on physical infrastructure and instead pledged that if it ever came to power it would focus on social sectors, particularly education and health, with the objective of providing human capital to what the general public regards as the perpetually beleaguered economy. Though social sector investment pays dividends in the long term, an element that accounts for elected governments' focus on short-term projects liable to pay political dividends within their tenure, yet few economists would challenge investment in these sectors. Be that as it may, the PTI pre-2018 election pledge has yet to translate into a development programme as to-date physical infrastructure, particularly roads, have continued to receive the largest outlay of development funding in the past two years.
Within the social and physical infrastructure sectors it is imperative for any government, including the PTI, to prioritize which subsector should receive state funding based on need (and its rate of return) and within each subsector which component would bring the most development or benefit to a community. For example, whether education or health must focus on building schools and hospitals only or whether focus needs to be on training of existing teachers/hospital workers and/or enhancing the numbers currently employed in these subsectors.
Both the PML-N and the PTI models however lack an in-depth economic analysis of each project, through calculating an economic internal rate of return (EIRR) and an internal rate of return (IRR) - a standard measure to determine the validity of priorities given scarce resources by multilaterals and bi-laterals. One would hope that the PTI government focuses on this particular aspect of its development disbursement that would enable it to maximize the return to the economy of each particular project as well as maximize public well being.
Priorities are constrained by resources and in this context the centre earmarked 650 billion rupees on federal Public Sector Development Programme (PSDP) and the Sindh government earmarked 232.94 billion rupees as development expenditure for the entire province. And while the 1.1 trillion rupees Karachi package is over a three-year period yet skeptics would be justified in raising their eyebrows on the source of funding for the package. It is not going to be easy for the federal government to divert massive amounts under other heads for the Karachi package or indeed for the Sindh government to divert significant resources to the city.
As matters stand today, the 2020-21 budgets of five of Karachi's districts are as follows: West 5.37 billion rupees, Central 7.9 billion rupees, East 2.82 billion rupees, Malir 2.92 billion rupees and Korangi 4.3 billion rupees. In total the districts would be unable to make any sizeable contribution to the Karachi package and even though few would challenge any realignment of expenditure priorities in favour of Karachi yet the challenge for both the federal and the provincial governments would be massive.
It is, therefore, advisable that the PTI government changes the political mindset through calculating EIRR and IRR for each project, weigh it carefully with its determination of the need for any one community, and last but not least within the recipient subsector of state funding determine where the need is greater.
Copyright Business Recorder, 2020
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